HEALTH CARE

Report: Health Insurance Profits Rise Despite Health Care Reform

Health insurance companies made ever-widening profit margins in 2011, a result that defies the companies’ predictions that health care reform would put private insurers out of business, a Bloomberg Government analysis has found.

The law’s detractors, including Republican presidential candidates Rick Santorum and former candidate Michele Bachmann, R- Minn., have argued that the 2010 health care legislation put the United States on the road to socialized medicine. Bachmann and other Republican critics have described the law as a “government takeover of health care," but the Bloomberg report suggests the opposite: Since the law was passed, private insurers have become more and more involved in managing public health insurance programs.

In the first three quarters of 2011, the five largest publicly traded insurers reported their best three-quarter performance of the past decade, Bloomberg found. The companies' average operating margin widened to 8.65 percent in 2011, compared with 6.9 percent in the 18 months before the law was passed, surpassing Wall Street analysts’ expectations.

Profit margins for 2011 widened despite new and potentially costly requirements for private insurers under health care reform, such as making insurers accept children with preexisting conditions. Since the law was passed, coverage has remained stable, cost growth hasn't substantially accelerated, and profits show no signs of declining, Bloomberg found.

Investment in public programs has become a major source of private revenue, the Bloomberg study found. Health insurance companies are moving in on Medicare and Medicaid markets by offering managed-care plans to patients enrolled in the public programs--Medicare Advantage and Medicaid managed-care programs.

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“Insurers’ commercial business now accounts for less than half of the companies’ combined total revenue. Medicare and Medicaid revenue account for more than 40 percent, and that share is rising,” according to the report.

“Quarterly Medicare revenue of the four insurers that report such numbers has increased by almost one-third, from $12.55 billion to $16.39 billion," the report reads. "The four insurers’ combined Medicaid revenue has more than doubled, from $2 billion to $4.11 billion.”

In the 18 months since health care reform was passed, commercial revenue grew by only 3 percent, the report found, meaning that expansion into the pubic sector likely accounted for much of the insurers' recent profits.

Bloomberg Government looked at the Securities and Exchange Commission filings of the five largest publicly-traded health insurers: UnitedHealth Group, WellPoint, Aetna, Humana, and Cigna. It also noticed the same trends in the financial results of Blue Cross-Blue Shield, a nonprofit. “The two sets of companies cover one in every three insured Americans,” the report noted.

The strategic moves by insurance companies suggest that the major insurers expect the health care law to be fully implemented—or, at least, that the pressures that prompted the law will continue the push toward managed-care programs, Bloomberg said.

“The expansions can be most fully understood as preparation for a transformation in the health care sector that’s being driven by a combination of the new law, rising costs, and deficit reduction,” the Bloomberg report said. Strapped for cash, state and federal agencies hope that privately managed, single-premium alternatives to traditional Medicaid and Medicare will help cut government costs. At the same time, enrollment in Medicare and Medicaid will grow as the baby boomers retire and health care reform expands insurance coverage.

“The carriers’ strong results also have been aided by a reduction in Americans’ use of health care,” the report said. But it added that while use of health care will likely rise as the economy improves, private management of public health care programs shows no sign of declining.

While moving in on public programs appears to be good for private profits, some analysts argue that outsourcing public health care programs doesn’t save taxpayers money. Medicare Advantage costs taxpayers 10 percent more than traditional Medicare, CNNMoney reported two weeks ago, citing figures from the Congressional Budget Office.